Debt Traps For Fresh Graduates

There are a number of debt traps that could put young people especially fresh graduates in a financial pickle. Their age becomes a factor as well because most of them lack the financial acumen to get through financial challenges. This can come from either experience in managing their own money, financial lessons or even both.

That being said, fresh college graduates are at the point where they are more prone to debt problems than ever before. As they enter the full-time working class, they are now more exposed to a multitude of financial tools. These can either help them get ahead and be able to plan their finances accordingly or put them under the crushing weight of debt traps.

This possibility makes it all the more important for younger consumers to be mindful on how to handle their finances. If you are part of the millennial generation who is just about to enter the workforce or already been working for a few years, here are some common potholes to watch out for. Knowing these beforehand will not only help you avoid them but learn from the process as well.

Charging too much on your card

There is no question that the use of credit cards is so deeply embedded in the financial practices and ways of Americans. In fact, it might even be a harder to find someone who is not using or has not used a credit card in their life. This day and age are mostly about charging to credit and taking care of the actual payment at the end of the month.

For one, it gives people the chance to manage their finances until payday comes along. However, it also poses as one of the trickiest debt traps for consumers much more, for the younger generation. For one, charging expenses could lead to unmanaged expenses. This can creep up and shock you when the statement comes around.

This is even more dangerous when you start to use multiple credit cards for specific expenses in your household budget. As effective as it can be for other people if you lack the discipline and commitment to stay within budget will be a cause for concern. You might start to charge more on your card simply because you have a lot to use. At the end of the month, you might not be able to meet all your payment obligations. This can force you to operate in the red and pay for penalties and other fees.

Putting off student loan payment

According to Forbes, the class of 2016 has an average of $37, 172 which forms part of the $1.3 trillion student loan debt in the country. This is already a big amount for consumers in their prime earning years, what more for fresh graduates taking on their first job? If you start to add basic necessities such as rent and food, their budget slowly becomes a tough balancing act to juggle.

As a result, some people might choose to put off their student loan payment. This decision then becomes one of those debt traps that is hard to escape. For one, student loans are a bit hard to discharge even in bankruptcy. Apart from mortgage loans, student loans are one of those payments that stick with people for a long time.

That being said, it is best to make sure that you prioritize student loan payments after you get your first job. This helps you develop the repayment habit early on which should make payments easier in the long run. Look into debt consolidation as well to combine your loans under one account. You might be able to take advantage of a lower monthly payment as well.

Sticking with minimum payments

Once you start talking about debt traps, one of the most overlooked factors is sticking to minimum payments. Fresh graduates usually rely on this to simply keep up to date with their payments. There is nothing wrong with minimum payments because it keeps penalties and fees at bay. However, you would end up paying more on interest as time goes by.

Sticking to minimum payments also keeps you paying on your debt for a lot longer time. True that it is your repayment schedule. However, sending in either extra monthly payments or principal payments can help your cause. It could shorten and pull your pay off date closer or even save you interest money in the process. There are a number of underlying factors when it comes to debt and minimum payments can be one of them.

Lifestyle inflation to show-off

If you are a fresh college graduate about to enter your first job, one of the biggest difference you would ever see is a spike in your income. If you are just like most college students who are broke, getting a steady pay could be a big jump in your finances. One of the first things that could change can be your lifestyle.

You can now afford things that may have been out of your league when you were still in school. This can result in lifestyle inflation and increase your expenses as well. What is worst is that there are times that you do this just to impress other people. As you continue with the charade, it becomes one of those debt traps simply because you cannot keep up. Your expenses will soon overrun your income. The time could come that you start to borrow money you cannot pay back to buy things you cannot afford to impress people you don’t even know.

Not checking your monthly statements

It could be tough for some people to start managing their finances on their own. They could have had some experience in college but doing it full time might be difficult. As the bills start to come in every month, young consumers might choose to just ignore their statements. They feel that they have a pretty good idea on how much they owe.

This financial approach can breed a multitude of problems that can lead to debt. For one, it would be difficult to see exactly how much you owe. As a result, there is a chance that you send out a lower amount which can result in penalties and fees. This increases the amount that has to be paid in the succeeding month. Not to mention the effect it would have on your credit score. As such, it is important to make it a habit to open and check your monthly statements. This can also be a good way to help protect yourself from identity theft.

Opting for payday loans

There are a lot of unexpected financial emergencies that can come your way. It is a lot harder for young people because they might not have an adequate emergency fund built yet to get them through it. This pushes some of them to look for ways to infuse cash on their budget. With this, they tend to take out payday loans simply because they know they can pay it back. The problem starts when the emergency takes longer than expected and they cannot pay back. This puts them in deeper debt as the interest starts to come in.

Here is a video about payday loans so you can understand it better:

There are a number of debt traps young consumers need to watch out for early in their careers because these can put them in the red early. The sooner they understand some of these potholes, the better they can prepare and steer clear of it.

* Clients who are able to stay with the program and get all their debt settled realize approximate savings of 50% before fees, or 30% including our fees, over 24 to 48 months. All claims are based on enrolled debts. Not all debts are eligible for enrollment. Not all clients complete our program for various reasons, including their ability to save sufficient funds. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of settlement. Please consult with a bankruptcy attorney for more information on bankruptcy. Depending on your state, we may be available to recommend a local tax professional and/or bankruptcy attorney. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating.